Monday, May 25, 2015

Malthus on Nominal Wage Rigidity

And some people think that downwards nominal wage rigidity is a product of modern economies from the 20th century:

“It very rarely happens that the nominal price of labour universally falls; but we well know that it frequently remains the same, while the nominal price of provisions has been gradually increasing. This is, in effect, a real fall in the price of labour; and during this period, the condition of the lower orders of the community must gradually grow worse and worse.” (Malthus 1798: 34–35).

This appears in the Reverend Thomas Malthus’ (1766–1834) famous An Essay on the Principle of Population (which is available here) already in the first edition of 1798, but also in subsequent editions (e.g., Malthus 1803: 14–15).

Presumably money wages were not as inflexible downwards as they are today, but in Malthus’ time were apparently still relatively inflexible enough to merit comment as though this was reasonably well known.

Now the evidence would strongly suggest that in the mid-Victorian period money wages were rather more flexible than they are now, so, with the development of capitalism and the growth of a large class of urban workers (or what Marxists call the reserve army of labour, the body of unemployed and under-employed in capitalist society), had nominal wages become more flexible than in Malthus’ day?

At any rate, by the 1880s and 1890s we can see strong evidence that money wages, even if they had become more flexible by the 1860s, had attained a strong degree of inflexibility downwards, as discussed in these posts:

"Secondly, the wages of labour do not, in Great Britain, fluctuate with the price of provisions. These vary everywhere from year to year, frequently from month to month. But in many places, the money price of labour remains uniformly the same, sometimes for half a century together. If, in these places, therefore, the labouring poor can maintain their families in dear years, they must be at their ease in times of moderate plenty, and in affluence in those of extraordinary cheapness. The high price of provisions during these ten years past, has not, in many parts of the kingdom, been accompanied with any sensible rise in the money price of labour. It has, indeed, in some; owing, probably, more to the increase of the demand for labour, than to that of the price of provisions."